TIME mag just published a GDP/Debt curve that shows a far smaller ratio for the present time than shown on the "one graph" that Chris said would explain everything a few days ago. Can anyone explain the differece in these two?

It shows the current total debt to be only 81% of GDP, using projected figures from 2009 Congressional Budget Office.

Chris does a much better job explaining the basis for his numbers than I ever could but I believe that the Times Magazine article fails to include the Social Security and Medicare 'liabilities' (running somewhere around $45 Trillion - i.e. ~4x the direct US debt) that have been promised to future retirees. Since these promises impact our (the citizens) day to day spending decisions (in the sense we go ahead and spend money we would otherwise save for our old age if we had less 'trust' in the government's ability to meet its promises) it ultimtely 'acts' like a debt owed to the U.S. citizenry.

For instance - suppose you are in the lower middle class and have a very smart child that you want to see go through college. And suppose your parents 'promise' to pay for their grandchild's college expenses. During the years your child is growing up, (because of this promise) you will make different decisions with your money than you would if the promise had not been made. Rather than scrimp now so you could put money in a college fund - you would go ahead and eat out a little more, take a few more vacations, etc... Then your child turns 18 and your parents tell you - 'sorry, we really don't have the money' At that moment, if you are going to put your child through college, either your parents must go into debt or you must go into debt (in either case - the promise turns into someone's debt (likely yours) - or the promise is simply not fulfilled (chew on that on in regards to Social Security and Medicare)).

stewl: do you have a higher quality version of this? I'd like to be able to read the details in the graph.

drbarbour: Without having full info on this Time article, I'd like to acknowledge the distinction between generalized debt and government debt/liabilities.

The governments debt includes direct debt for the things it has already done, but the longer term liabilities also can get wrapped into this in the form of social security, medicare/caid, etc. This number is now totaling over $60 Trillion, I believe...nearly $200,000 per head in America.

But the generalized private debt would include mortgages, car loans, credit card debt, etc. This debt is all "real" in the sense that it exists for actions already taken, not because of future promises that can be renegged on. This is huge problem and when this debt in particular fails to expand, we begin to see the defaults, since there is not enough money to cover interest on the old debts.

Do you know what Time was going after with this? If they come up with a number less than 100% of GDP, then I would say they must be dealing with the direct debt of the US government which is indeed slightly under 100%, but getting much higher now as our GDP contracts and our bailout debt increases. This, of course ignores ss and medicare/caid. Leave it to Time magazine to give the impression that our debt represents less than a year's worth of economic activity.

where did you get this graph? i know that it is from time mag but i searched the website nad couldn't find it. i need it for a presentation i have coming up. thanks, the date and issue number might help.

what i am looking for is the chart going back to the 1940's so that i can get the peak % of 121% achieved by the spending during wwII. i also don't want (debt + entitlements)/gdp ratio because i already have that graph.

As Chris has pointed out in previous posts, there are many ways that our country's debt is measured. So, for example, the U.S. public debt according to the CIA World Factbook https://www.cia.gov/library/publications/the-world-factbook/rankorder/2186rank.html (2007 figures) ranks the U.S. at #27 and puts the U.S. debt to GDP at a bit over 60%, (most notable about this figure to me is that the U.S. has a lower ratio than Germany and Canada among other countries). The Time Mag piece is probably using the same or similar #'s to get to their 81% debt/gdp ratio when projected out to 2008. Other ratios put the debt/gdp much higher; Chris explained in other posts the calculations of 300 or even 400+%. What I want to understand is which debt is meaningful and why. If certain debt is excluded from the calculation, as it most certainly is in the Time Mag cite, how does that impact reality?

Thanks for your comments so far. The discrepancy seems to come from the fact that the fed's data is not all inclusive.

hmm - last time I managed to insert the attachment, but this time I can't see or remember where the tool to do it is - the scanned image is a file on my PC, not on a webste, and the insert image tool I see here is for images already online...???

If you watch the Crash Course chapter on Debt and listen carefully, I make sense of these points and give you the tools to decode the somewhat misleading method used by TIME, et al., in producing such graphs.

There are five major holders of debt out there:

Federal government

State governments

Municipal governments

Corporations

Individuals

Further, the federal government has a set of liabilities that are not included in any countings of "debt" because as I explained in the blog post on Debt-to-GDP these liabilities do not pass the legal test for debt as they can be voted away or modified at any time by Congress.

The 81% figure used by TIME is only federal government debt.

But who is it that will pay those federal debts off? If you think about it long enough, there is only one source of repayment and that is taxes from citizens.

But what about the state debts, how will those get paid back? If you think about it long enough, there is only one source of repayment and that is taxes from citizens.

But what about the municipal debts, how will those get paid back? If you
think about it long enough, there is only one source of repayment and
that is taxes from citizens.

But what about the corporate debts, how will those get paid back? If you
think about it long enough, there is only one source of repayment and
that is through the actions of citizens.

But what about the private debts, how will those get paid back? If you
think about it long enough, there is only one source of repayment and
that is through the actions of citizens.

Federal debt only gives us an 81% debt-to-GDP ratio

All five categories of debt gives us a ~350% debt-to-GDP ratio

Including the federal liabilities back in gives us a ratio closer to 650%

This is why I do not distinguish between and among the debts when trying to assess "where we are" and how much of a burden our debt load may be. Focusing only on a narrow band of federal debt to make a claim about the financial health of this country is like trying to assess the destruction from a hurricane on foot.

But I certainly understand why TIME et al., prefer to display debt to GDP using only a narrow slice of the federal debt. It makes things seem almost normal from a historical perspective when they are anything but.

And don't even get me started on the apples to baseballs comparison resulting from the slow torture of the GDP measurement methodology over those same decades displayed in the graph...

I just wrote TIME with links to The Crash Course, Chris' Jan 13 post about GDP, this website and I copied what he wrote above. When we all see articles that don't make sense, I feel it would be helpful to others if we all went to the source with a response to show them the truth. With Chris' clear explanation, I hope the media will begin to pay attention to what he has to say.

Thank you for taking the time to go into detail to explain the differences between the TIME curve and your curve. It is clear that your curve is a much more comprehensive representation of the real world's financial status.

I am also appreciative that 'Cat233' has contacted TIME with your explanations.

Your website & blogs are wonderful sources of information and idea exchanges. As many before have said, THANK YOU for all you are doing for us.

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Can anyone tell me how to insert an image into these posts & replies? I did it the first time, but can't find the way to do it now.